technology for development: the microfinance industry adapts

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Technology for Development: The Microfinance Industry Adapts Claudia McKay 11 May 2016

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Page 1: Technology for Development: The Microfinance Industry Adapts

Technology for Development: The Microfinance Industry Adapts

Claudia McKay

11 May 2016

Page 2: Technology for Development: The Microfinance Industry Adapts

2

For several years following the explosion of mobile money, MFIs struggled to adapt…

…but the story is changing

Page 3: Technology for Development: The Microfinance Industry Adapts

Mobile banking

Link between a mobile money wallet and account at an institution

3

$ $

Mobile money account

MFI or bank account

Advantages: •  Relatively easy to set up •  Leverages telco infrastructure •  Convenient for customers

Disadvantages: •  Expensive for clients

Page 4: Technology for Development: The Microfinance Industry Adapts

Agent banking

4

Agents conduct transactions on behalf of MFI directly

MFI or bank account

Agent

Page 5: Technology for Development: The Microfinance Industry Adapts

Agent

Agent Agent

Agent Agent

Agent

Agent Agent

Agent

Agent

Agent

Agent

Agent

Agent

Agent banking: Hub and spoke

5

Small Branch

Small Branch

Small Branch

Main Branch

Page 6: Technology for Development: The Microfinance Industry Adapts

0.00

5.00

10.00

15.00

20.00

2008 2009 2010 2011 2012 2013 2014 2015

Finca Tanzania’s progression towards DFS

Tanzania active mm customers, in millions

6

2013: Mobile banking through Vodacom M-Pesa

2014: Agency Banking pilot

2015: Mobile banking via aggregator with all MNOs

Until 2012: Only branch

Source: CGAP estimate

Page 7: Technology for Development: The Microfinance Industry Adapts

Motivations

7

Page 8: Technology for Development: The Microfinance Industry Adapts

20%

2%

12%

1 - 3%

Traditional Agent channel

Finca Tanzania Microcred

Expected decrease in cost of funds from both institutions

Motivation: Lower Cost of Funds

8

90%

Average cost of funds

Page 9: Technology for Development: The Microfinance Industry Adapts

Motivation: Lower Cost of Infrastructure

9

Sample Projection Distribution cost vs. asset growth

0

40

80

120

160

200

240

0%

1%

2%

3%

4%

5%

6%

2014 2015 2016 2017 2018 2019

CFA

Fra

ncs,

in b

illio

ns

Cos

t as

a pe

rcen

tage

of a

sset

s

Branch costs Agent costs Mini branch costs Total assets

Assets increase

4x

While distribution

costs decline by 2

percentage points

Page 10: Technology for Development: The Microfinance Industry Adapts

Motivation for agent banking: Own the Customer Experience

10

Control the customer experience and branding

Many MFIs have specific brand attributes and want to control how this permeates to digital channel.

$

Control the pricing strategy

Most MFIs want cheap deposits – not transaction revenue – so want cash-in and cash-out to be free.

“We’ve seen different players try to use the mobile channel and it’s never worked. We wanted control over the customer experience.”

Page 11: Technology for Development: The Microfinance Industry Adapts

Finca DRC attributes

30% of their customers to the agent channel

Motivation: Grow Customer Base

11

Most MFIs are just starting to build out hub-and-spoke models with agents close to branches so significant customer growth through agents has not happened in most cases.

Page 12: Technology for Development: The Microfinance Industry Adapts

Of customers who signed up via an agent, 50% were active and performed an average of 4 cash-in or cash-out transactions / month

50%

One year after launching mobile banking, 20% of all transactions were going via mobile channel

Early evidence is positive

12

20%

An account active on mobile banking has 3X the balance vs. a normal active account $

$

$

Within 9 months, 35% of all cash transactions were being done on agent channel 35%

Page 13: Technology for Development: The Microfinance Industry Adapts

Equity Bank: Majority of cash transactions have been shifted to the agent channel

13 Source: Equity Bank Investor Briefing Q3 2015

0

10

20

30

40

3Q 2011 3Q 2012 3Q 2013 3Q 2014 3Q 2015

Number of transactions, in millions

ATM Branch Agency

Agency 51%

ATM 27%

Branch 22%

Percentage of transactions by type

(2015)

Page 14: Technology for Development: The Microfinance Industry Adapts

MFIs adapting to DFS in different ways globally

14

Latin America Agent banking has helped MFIs reach rural markets quickly and decongest branches, offering better service.

Asia Good human resources at low cost combined with high population density means better viability for current branch structure.

In Bangladesh BRAC does not use bKash (same owner) while in Tanzania BRAC does leverage M-PESA as cheaper alternative

Africa Very high cost of materials and human resources combined with low population density means DFS brings high incremental gain.

Page 15: Technology for Development: The Microfinance Industry Adapts

What about the impact on loans?

15

DFS has had limited impact on loan methodology •  Underwriting process is still

in person •  Many MFIs are using DFS

for loan repayments •  Loan officers in some

institutions, worried about their own redundancy or declining group cohesion, actively discourage clients from paying digitally.

Page 16: Technology for Development: The Microfinance Industry Adapts

Andrée Simon, Finca • Kabeer Naqvi, Ubank • Grégoire Danel-Fédou, Advans

Technology for Development: The Microfinance Industry Adapts

Page 17: Technology for Development: The Microfinance Industry Adapts

Andrée Simon Finca Microfinance Holding Company

Photo: Joyce-Mandevu, Malawi, Africa, Finca Client

Page 18: Technology for Development: The Microfinance Industry Adapts

Kabeer Naqvi UBank, Pakistan

Photo: UBank Customer

Page 19: Technology for Development: The Microfinance Industry Adapts

Grégoire Danel-Fédou Advans, Côte d'Ivoire

Photo: Advans Côte d'Ivoire customer

Page 20: Technology for Development: The Microfinance Industry Adapts

Andrée Simon, Finca • Kabeer Naqvi, Ubank • Grégoire Danel-Fédou, Advans

Technology for Development: The Microfinance Industry Adapts

Page 21: Technology for Development: The Microfinance Industry Adapts

Advancing financial inclusion to improve the lives of the poor

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